Developments in the sahara case after the supreme court judgement

The newspapers have been filled with reports on the court proceedings against two Sahara Group companies, Sahara India Real Estate Corporation Limited (Sahara Real Estate) and Sahara Housing Investment Corporation Limited (Sahara Housing) (together, Saharas). It would be useful to note the various proceedings that culminated in an order of the Securities and Exchange Board of India (SEBI) yesterday, attaching all the properties and bank accounts of the Saharas and its promoters.

On 31 August 2012, the Hon’ble Supreme Court of India (Supreme Court) ordered the Saharas to refund approximately INR 174 billion along with an interest of 15 percent, within 3 months from the date of the order (SC Order). They ruled that Saharas had issued unsecured optionally fully convertible debentures (OFCDs) to the public in violation of the provisions of the SEBI Act, 1992, along with rules and regulations made thereunder and the Companies Act, 1956. The Supreme Court had also ordered the Saharas to submit all supporting documents to ascertain genuineness of the investors and refunds made, within 10 days of the SC Order. The SC Order was passed by a two member bench of the Supreme Court consisting of Justice K S Radhakrishnan and Justice Jagdish Singh Khehar.

On 5 October 2012, the Saharas and an investor association filed three review petitions (Review Petitions) before the Supreme Court challenging the SC Order. Subsequently, on 8 January 2013, the Review Petitions were dismissed stating that the grounds of review of a judgement as set out in order XLVII, Rule 1 of the Code of Civil Procedure, 1908, were not satisfied. Further, as a sequel to dismissal, the applications seeking permission for open court listing, intervention and directions / stay were also dismissed. The review petition filed by the investor association was dismissed on the ground of absence of locus standi.

Meanwhile, Saharas failed to submit documents to SEBI within the time stipulated in the SC Order. SEBI issued a letter dated 1 November 2012 asking the Saharas to furnish details of all their bank accounts and properties. On 27 November 2012, Saharas filed 3 appeals before the Securities Appellate Tribunal (SAT) seeking extension of time for submission of documents and requesting SAT to issue directions to SEBI to accept a pay order of INR 51.2 billion for repayment of amounts to OFCD subscribers. Saharas contended that only half this amount was outstanding and the rest had been repaid. SAT, vide its orders dated 29 November 2012 (SAT Order 1) and 20 December 2012, dismissed all the 3 appeals.

Since Sahara failed to refund the stipulated amount of approximately INR 174 billion along with interest of 15 percent within the 3 month timeframe and submit all supporting documents as ordered in SC Order, on 2 November 2012, SEBI filed its first contempt petition against Saharas before the Supreme Court. The contempt petition was heard by the same bench that passed the SC Order. On 6 February 2013, this bench asked SEBI to file a status report within two weeks.

Aggrieved by the SAT Order 1, Saharas filed a writ petition with the Supreme Court. The writ petition was heard by a 3 member bench of the Supreme Court consisting of Chief Justice of India Altamas Kabir, Justice Surinder Singh Nijjar and Justice J Chelameswar on 5 December 2012. The Supreme Court gave Saharas an extension to make payment as follows (i) immediate deposit of demand draft amounting to INR 51.2 billion with SEBI; (ii) the first instalment of INR 100 billion to be deposited with SEBI within the first week of January 2013; and (iii) the remainder, along with the interest to be deposited within the first week of February 2013. The time for filing documents in support of the refunds was extended by 15 days.

Since the Saharas failed to pay both the instalments and submit the entire documents within the extended period SEBI, on 13 February 2013, passed an order (SEBI Order) against Saharas, inter alia, freezing their bank accounts and attaching their properties. Further, the Saharas have also been directed to furnish details of investments, development rights, special purpose vehicles and stakes in other entities. The SEBI Order also freezes the bank accounts / demat accounts and attaches all moveable and immoveable properties held by the promoters of the Saharas, Mr Subrata Roy Sahara, Ms Vandana Bhargava, Mr Ravi Shanker Dubey and Mr Ashok Roy Choudhary. This order was in response to observations by the original bench of the Supreme Court that SEBI needed to act to avoid being held in contempt by the court.

This decision of SEBI has far reaching implications on the business of the Saharas and their promoters. The coming days are likely to see frenetic activity in the Indian courts to mitigate the impact of this order.

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